Tech Accelerates One Aspect of Reverse Mortgage Originations

Reverse mortgages generally take longer to originate than traditional home loans, but there is at least one part of the process that can now compete, one industry veteran finds.

The government-dominated market for reverse mortgages, which allows senior citizen borrowers under certain conditions to withdraw some equity from homes they live in without incurring additional debt, is slow-moving in that it can take a long time to adequately explain the concept to consumers.

However, once that's done and the borrower has submitted an application, it's a relatively quick loan to render an underwriting decision on and potentially close on today thanks to technology advances, according to Jeffrey Taylor, a consultant who previously ran Wells Fargo's reverse mortgage unit.

"Once the counseling is completed and a certificate is presented to the lender it can close in as fast as three weeks," he said, noting that on average today closings with automated assistance take about 45 days.

That's a lot faster than in the past, said Taylor, who has worked in various aspects of the reverse mortgage business since 1989 and now sits on the board of ReverseVision, a vendor specializing in reverse mortgage automation and education.

"There was a time when it took 60 days to get a reverse mortgage closed," he said.

The catalyst for better reverse mortgage technology available today was a surge in HECM applications that occurred just before the mid-aughts boom-bust cycle curtailed them, Taylor said. Prospects for the loans are better now, he said.

Reverse mortgages, which today are primarily loans made through the Federal Housing Administration's Home Equity Conversion Mortgage product, are still going through regulatory reform but appear to only have two major rules left to finalize, only one of which directly affects originators, said Taylor.

Reform aimed at improving HECM quality has promise even if it did cut volumes at least short term, and securitization appetite for the product is underserved as a result.

With traditional or "forward" mortgage volumes ebbing to some extent, and reverse mortgages slow to initiate but potentially attractive to an underserved and sizable 62-and-older demographic, traditional mortgage lenders have increasingly added or have considered adding the product, he said.

This has been a challenge in the past due to reverse mortgages' specialized nature, but advances in data transfer technology among other things today can help originators transferring leads from traditional originations into reverse mortgage applications that a growing group of wholesalers want, Taylor said.

Advances in automation also help when it comes to the new compliance requirements, he said.

"Without the technology, it would be difficult for lenders to put all of these different rules into each one of their systems," he said. But today automation that incorporates all the existing rules is available and more easily integrated with existing systems, said Taylor. Mortgage companies are still responsible for compliance by their third parties and should vet such systems themselves, too.

While automated compliance in the reverse mortgage space — like the traditional lending space — has been undergoing a lot of revision overall, some aspects of reverse mortgage underwriting have been more stable, Taylor said.

"Comparing it to the forward space with all the qualified mortgage rules, protocol and the ability-to-repay regulation, the reverse mortgage has stayed pretty consistent in terms of a minimum FICO score is not required and ability-to-repay as far as getting the mortgage is not required," he said.

However, the ability to repay taxes and insurance on the property will be subject to a pending financial assessment rule in originations. The other reverse mortgage rule pending involves servicing policies for existing situations where a spouse unnamed in loan documents remains in the home after it comes due.

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